Selection Effects with Heterogeneous Firms

Monika Mrazova () and J. Peter Neary

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: We provide a general characterization of which firms will select alternative ways of serving a market. If and only if firms' maximum profits are supermodular in production and marketaccess costs, more efficient firms will select into the activity with lower market-access costs. Our result applies in a range of models and under a variety of assumptions about market structure. We show that supermodularity holds in many cases but not in all. Exceptions include FDI (both horizontal and vertical) when demands are "sub-convex" (i.e., less convex than CES), fixed costs that vary with access mode, and R&D with threshold effects.

Keywords: Foreign direct investment (FDI); heterogeneous firms; proximity-concentration trade-off; R&D with threshold effects; super- and sub-convexity; supermodularity (search for similar items in EconPapers)
JEL-codes: F12 F15 F23 (search for similar items in EconPapers)
Date: 2012-10
New Economics Papers: this item is included in nep-com and nep-int
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Citations: View citations in EconPapers (9)

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https://cep.lse.ac.uk/pubs/download/dp1174.pdf (application/pdf)

Related works:
Journal Article: Selection Effects with Heterogeneous Firms (2019)
Working Paper: Selection Effects With Heterogeneous Firms (2013)
Working Paper: Selection effects with heterogeneous firms (2012)
Working Paper: Selection Effects with Heterogeneous Firms (2011)
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